The independent advisory space can sometimes be a bit like the town of Deadwood. It was empty once, but then a few telegraph poles went up, the railroad came through, and now prospectors, artisans and journeymen are arriving. Sometimes a path might become a road in a new town, and sometimes it might not. As order emerges out of anarchy, people rally around certain values, symbols and identities (say, whether or not they sell products or are held to a fiduciary standard). It's a world still wild enough that influential people can stamp it in their own image.
But trying to carve out a niche marketing services in this world comes fraught with challenges. Tom Bradley, the president of TD Ameritrade Institutional, is well aware of them. "If you get 100 advisors in a room and you ask them what's the best CRM system, you'll get 110 different opinions," Bradley says.
"We've begun to refer to it as 'the ecosystem' that supports RIAs," says Bernie Clark, executive vice president and head of Charles Schwab Advisor Services. "We used to look at it very much as private equity and capital that was coming into the space by way of holding companies or roll-up kind of ventures. But there are also a lot of purpose built companies now. Platforms being built, technologies, management systems, portfolio management systems, people like Microsoft and Salesforce who have become interested in building tools just for advisors."
Add to that, he says, the companies offering outside help with IT, human resources, payroll, cloud computing and compliance. "There are more providers than ever before helping firms with their compliance," Clark says.
To that end, TD Ameritrade, Charles Schwab, Fidelity and Pershing, the large custodians in this space, are a bit like the prospectors selling pick axes at the gold rush. Except what they must offer are the most compelling back office propositions, research, consulting help, CRM applications, portfolio management software, mobile apps, etc. Some of this help involves nifty gadgets like iPad apps. And sometimes it's a matter of dealing with less sexy issues like regulatory guidance, especially in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
With so many breakaway brokers in play and a lot of new independent RIAs who need help getting set up, it's the custodians' game to lose. Yet there's a paradox at the heart of the custodian sales pitch: They are selling the concept of organization to a clientele that in many cases is seeking freedom from it. Many of these RIAs have left the big Wall Street firms to sell themselves as artisans with their own way of doing things.
Fidelity rolled out an ambitious program two years ago in which it realigned its service desk so that advisors had a team to deal with, rather than a lot of disparate specialists with different phone numbers centered on different functions. At the center of that is the technology platform Wealth Central, which Fidelity launched in 2009. Mike Durbin, president of Fidelity Institutional Wealth Services, says the firm recently hit an important threshold when the number of Wealth Central users outpaced the number of those using its legacy system.
To Wealth Central, the core of the offering, Fidelity is adding third-party components. The company allows new advisors to use either the entire offering end to end, say if they are coming from brokerages, starting from nothing, or to use pieces of the platform on an à la carte basis. Unlike other offerings, this one is not based on a hub of client relationship management software. Though the firm uses a bidirectional integration with Oracle as a CRM (and Fidelity has also added Salesforce, Redtail and AppCrown), advisors have other ways to get into the hive, such as through the portfolio management offerings. The firm started with Advent as a portfolio management system a reporting system, says Durbin. It added Black Diamond over a year ago, and has now added Morningstar.
"You could sit down and start with the Oracle CRM system," says Durbin. "You can on an integrated basis take a prospect to a new account, do a financial plan, open the account, do the initial investment. You can do all of that in a very integrated way from the CRM all the way back through to the portfolio reporting. But you don't have to. So the Wealth Central core allows somebody to come in at a new sort of household level and be able to rebalance and invest and move money and do performance reporting, etc. That stands in a fairly important contrast to what some others might be doing, which is to position CRM sort of at the center. I look forward to understanding more and more about what that means.
"Over the last 10 years, not surprisingly, technology has moved fast and there are lots of new providers and lots of new applications and lots of new delivery platforms and lots of organizations sort of beating the drum around new features and functions," he says.
The RIA community embraced all these different solutions, he says, as pet products, but now, he says, in many cases all these different pieces of software in an advisor office have gotten out of control. "I think firms woke up and sort of looked inside their firm and said, 'Boy, I have a pretty complicated technology ecosystem to manage because I went off and I maximized features and functions sort of one application at a time. Where now-whether it's in this return environment or the specter of a tougher compliance environment-I think firms are looking at their infrastructure with a very critical eye and asking, 'Is it really delivering efficiency to my practice? ... Are these systems really talking to each other and working in a way in which my practice is working?'"
In September of this year, Fidelity launched a tool it called Technology Investment Evaluator, in which company consultants examine an advisor's technology and work flows and help the advisories make their tasks and their relationship to the robot world more friendly and workable.
Schwab's strategy, meanwhile, to merge tech with humanity and thus snare more breakaway brokers, is a multiyear initiative called Schwab Intelligent Integration. Under this plan, the company will offer advisors two technology platforms, a turnkey technology solution called OpenView Integrated Office that builds on the CRM application Salesforce, and a more open architecture called OpenView Gateway (see Joel Bruckenstein's story on p. 76). To this Schwab is adding the Schwab OpenView Workflow Library. This gives advisors detailed task lists and assigns roles for common jobs in an office. The library starts by mapping out those things advisors are usually less clear about: business development, referrals, first contacts with clients and new account setups. These are free to Schwab custody customers, and the firm will continue adding work flows in 2012, it says.
"Schwab Intelligent Integration is really our big launch for this year," says Clark. "Some strategies are, 'Take this box off your desk and here is your new box.' That's not what this is about. This is more about saying, 'You have everything you need, but you're entering it multiple times, you're reconciling it multiple times. Your work flow is not connected with your technology.' It's more about making that smart integration. If you enter it three times, something will go wrong."
After asking advisors where it should start with its client relationship management software, the centerpiece of its platforms, Schwab started with the CRM systems Salesforce, Junxure and Microsoft. But the firm intends to add other CRM systems, trade rebalancing tools, portfolio management tools. The idea is that the CRM will become a hub. For advisors coming into the space as breakaway brokers or coming from independent broker-dealers, says Clark, the OpenView Integrated Office is the turnkey solution that could help get advisors up and running. "It will have all the things they need to begin doing business immediately with the client to be an RIA." OpenView Gateway is for those advisors who want to go purchase their own software, such as Salesforce or Junxure, and then write to Schwab's platform.
TD Ameritrade, for its part, recently came out with an aggressive way to get RIA software applications to talk to each other-using an application programming interface, the firm turns its back office data over to any vendor in the RIA space. The rules of the API allow tech vendors to populate their programs with TD Ameritrade's data. It was aggressive enough that many observers thought all the platforms would be doing it eventually (an article by Financial Advisor writer Andrew Gluck earlier this year said the initiative was a possible game changer).
"It's a model that's similar to the model of Apple Computer," says Bradley. "When you open up your platform, you allow other technology providers to write to you. Rather than try to get advisors to switch and go to the trouble of a conversion, we just decided, you know what, let's let advisors pick those systems and let those systems write to TD Ameritrade. So we've got some great feedback from advisors on that approach."
This is where the custodians start to differ in attitude and approach. Clark says that the proliferation of vendors is already causing anarchy. Many advisors coming out of the gate from a brokerage or company where they had a sophisticated back office don't want the responsibility of building out entirely new platforms of their own.
"The trend we're seeing is where advisors want more choice, but they are asking for more descriptive choice-show me two alternatives to have. Oh, a turnkey platform. That's good; I don't need to be the COO and build my entirely new platform. Ten years ago, five years ago, there was a little more of that pride of authorship."
As for using APIs to allow vendors to use Schwab data, Clark says Schwab is a bit cautious at this point. "We're not saying we won't be open to more [vendors], but sort of the traditional way of doing this is sort of having APIs with anybody who wants to sign up, and we believe that there needs to be a higher standard for this platform. We're trying to be careful in making sure that we've got best-in-breed type technologies."
Technology always gets the parlor debate going, but custodians are also coming up with other goodies as well to attract advisors away from both wirehouses and independent broker-dealers. All the major custodians continually come out with practice management ideas and research to help advisors take advantage of a changing marketplace.
Pershing said in October that it has added Comerica Bank & Trust, NA and New York Private Trust Company to its "Trust Network," an open-architecture platform that allows RIA customers to give clients a wide range of personal trust services.
Schwab also expects to launch in the first half of next year an improved pledged asset line lending system through its bank, a revolving line of credit secured by eligible assets that can be applied for online against individual portfolios. The clients will be able to access these in seven to ten days. "Those asset lines are really important to clients for especially the advisors coming from wirehouses," says Clark. "We have a bank. Many of our competitors don't have banks. This is an opportunity for us." He said that advisors coming out of wirehouses expect these credit lines.
"If their client at Merrill Lynch had a pledged asset line of credit of a million dollars, they expect that when they transfer over they're going to have a pledged asset line of a million dollars," Clark says.
The company is also working on lending programs for advisors to fund junior partner buyouts. "Only about half of advisors have succession plans," says Clark, "So we're anxious to make sure they're thinking about succession." Clark says that ongoing regulatory oversight questions will likely prompt M&A activity since it will be harder and more expensive to comply in multiple states, possibly under different regulatory agencies.
More advisors are choosing to join an existing RIA so that they don't have to replicate lesser services that don't add to the bottom line.
However, says Bradley: "The reality is today there are many more buyers than there are sellers. That being said, we are starting to see a slight pickup in the number of sellers, so one of the things advisors are asking us for is to become involved in helping them raise capital [to] make these acquisitions."
To that end, TD Ameritrade is in the process of creating a program that gives certain advisors access to capital to make these acquisitions. Bradley says the initiative will be launched in the first quarter of next year. Advisors might get direct financing from TD Ameritrade or an introduction to financiers.
TD Ameritrade is also expanding its options market center, based on its purchase of Thinkorswim a couple of years ago. Despite some reported hiccups in the transition, he says that options use by the company's advisors are up 50% year over year in early November.
"We found that with the recent volatility in the markets and with low interest rates, advisors are looking to do two things: One, they're looking to generate some incomes in some of the portfolios for some of their clients, and number two, they're looking to try to reduce or hedge against some of the volatility that they're having in their portfolios, and options frankly can help advisors with both of those things." The company also has a strategy desk and live workshops available through an advisor education portal on its Web-based Veo platform.
Pershing in late October introduced a browser-based version of its open-architecture NetX360 technology platform, which it said could act as a complement to disaster recovery and business continuity plans. The company says it allows RIAs to manage their advisory businesses on a single integrated platform.
Mobile apps have also become important to these strategies. In April, TD Ameritrade released a new iPad app that gives advisors access to client accounts through its mobile Veo application. Fidelity in July launched an iPhone and Android mobile trading app for RIAs that could be downloaded through Wealth Central. Pershing introduced an iPad version of NetX360 in June 2011 and also has versions available for the Android, iPhone, BlackBerry and Windows Mobile. At its IMACT 2011 conference in November, Schwab previewed the first Schwab Advisor Center mobile app that will roll out to advisors next year.
Bradley says these changes are part of a bigger picture-a younger clientele and a younger advisor community.
TD is trying to get advisors to acknowledge the increasing influence of both younger clients and female clients. Affluent women control trillions in assets, Bradley says, yet they aren't getting advice. Also, the firm is stressing to advisors the need to get Gens X and Y involved in financial planning, because that wealth is in danger of walking out the door when current clients die and their children seek new financial relationships.
That youthful attitude will also influence the way financial advisories themselves are conducted, he says. These firms will not only increasingly be run on iPads, but their principals will be going out of house for à la carte service, he says, whether it's compliance or disaster recovery.
"If you look at the older, more established advisory firms, they're more inclined to keep everything in house," says Bradley. "But as the younger generation moves in, they are more likely to outsource and pay for those solutions from third parties. At TD Ameritrade, we're working to foster that trend either through in-house solutions or to introduce advisors to outside well-known or reputable third parties or companies."